At what point does 'I'll just deal with it when it breaks' stop working?

Question

Talked to another landlord recently who doesn't reserve for anything, just keeps cash on hand and handles repairs as they come up. Works fine for him, three properties, healthy cash position, never worried about it.

Got me thinking about when that approach actually breaks down. For me it stopped working around property number two, when a water heater and an HVAC unit hit end of life the same month, on two different properties. Reactive worked fine when I only had one thing that could go wrong at a time. Once you've got multiple properties with systems aging in parallel, "deal with it when it breaks" starts colliding with itself.

Curious where everyone's line is. Is it a property count thing, a cash cushion thing, or do some of you genuinely never bother reserving and just eat the surprises as they come?

Marc Winter · Answer

Owning rentals is a business, and 'running naked' is not a good business practice.

Reserves: got to have them. It's just good business, and they make a very comfortable pillow.

Drew Sygit · Answer

You don't need cash reserves - line of credit, HELOC or even a credit card can work.

Michael S. · Answer

Always have more cash reserves than you ever think you'll need - we've had to replace 2 HVACs in the same week previously - it happens.

We have our HVACs served annually - this typically buys a few years of lifespan on the units and 1-2 less services calls during their lifetime - plus, we caught a unit that was starting to leak carbon monoxide on a routine service inspection before it ever was significant enough to cause issues (aka didn't set off the detectors because it was a trivial amount), and replaced it accordingly (unit was 15+ years old).

Hot water heaters we are not proactive with, as they are not a huge cost center compared to an HVAC.

Alan F. · Answer

Most HVAC units have a date code, or ser # that can be researched. It could be checked out....coils dirty, board corroded, condensate plugged, evap coils plugged. Anyone thrown the gauges on lately?

WH too, anyone checked the anode?

Maybe there's a relationship between cap ex reserves & simple maintenance.

To answe the title; When it breaks

Ricardo Gonzalez · Answer

That water heater plus HVAC story is exactly why I think the reactive approach has an expiration date. It works great until it doesn't, and when it stops working it usually stops working hard.

Personally I always keep a maintenance reserve no matter what. Even on a single property with plenty of cash on hand, having that dedicated account just removes the anxiety. You stop dreading the tenant call because you already know you can handle whatever it is.

There are a few rules of thumb floating around. The most common is 5-10% of monthly rent set aside every month. On a $1,500 rent that's $75 to $150 a month. Doesn't sound like much but after a year you've got $900 to $1,800 sitting there just for repairs. Some people prefer the 1% rule, which is 1% of the property value per year, so a $200k property gets $2,000 a year in reserves. For older properties or ones with aging systems, I'd lean toward the higher end of either range.

The separation matters too. When that money sits in your main account it feels available and you spend it. When it's in its own account labeled maintenance reserve it stops feeling like yours to use on other things.

For me it's not really a portfolio size question. It's more about whether you want to sleep well at night.

At what point does 'I'll just deal with it when it breaks' stop working?

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